While the U.S. Federal Reserve has captured a lot of investors' attention over the past week, it is the trade negotiations between Washington and Beijing that will have a greater impact on stock markets in Asia, Credit Suisse said on Thursday.
The Fed last week decided to hold interest rates steady — potentially for the rest of this year — and lowered its growth forecast for the U.S. economy. The central bank's moves were followed by an inversion in the U.S. Treasury yield curve, which is seen as an early indicator of a recession.
"I think the impact of the Fed on the markets currently in Asia is going to be significantly less than the talks that are happening now in Beijing," Neil Hosie, Credit Suisse's head of equities for Asia Pacific, told CNBC's Nancy Hungerford at the Credit Suisse Asian Investment Conference in Hong Kong.
Negotiators from the U.S. and China are scheduled to meet in Beijing for their next round of talks starting Thursday. After that, both sides are expected to hold meetings in Washington starting April 3. The two largest economies in the world are negotiating a trade deal after a tariff fight that started last year.
Chinese stocks have been the best performer in Asia this year after a battered 2018. The Shanghai composite jumped 21.21 percent so far this year, while the Shenzhen component rose 30.51 percent. The improvement was partly due to investor optimism that tensions between the U.S. and China would not become worse, said Hosie.
"The rally that we've seen in Chinese equities year to date is partially because of the optimism around getting a good outcome (on trade) but it's also valuation-led," he said, adding that Chinese stocks were trading "well below their historical valuation," which made them attractive.
"I think we're at a point where trade talks are incredibly important and any shock to that trade talk position could cause a bit of a pull back," Hosie said.